Saturday, October 07, 2000

What Value Do My Customers Add?

New Economy Management: What Value Do My Customers Add? ~ Charles Caldwell, Asia Pacific HR Director for Rockwell Automation, provides a series of management concepts for individuals looking to develop their management and business skills in The New Economy.

The New Economy focuses on customers, propels the customer experience to a whole new paradigm and seeks ways for customers themselves to add value. One must ask, “What value do my customers add?” because mastering the customer’s role in the value creation chain can be the ultimate competitive weapon for a new start-up, or Old Economy company transitioning into e-business. Here are some examples of how customers add value.

Proctor & Gamble: P & G claims that customers account for 13% of the value created in a supermarket. Goods sit on shelves and the customers provide labor by walking through the aisles selecting products. If the customer spends too long in the store, the cost of that labor increases. Therefore, well-planned layouts make the shopping experience aesthetically pleasing and logistically easy for the customer to maximize the value impact and keep the labor cost low. Lesson: P & G relates to the customer as if they part of the value chain.

Ford Motor Company: In the 1980s Ford launched the Ford Taurus car, a hugely successful product even to this day. Part of the Taurus success came from value provided by customers. First, Ford invited customers to help design the car from an ergonomic and performance perspective. Second, once Taurus was built, Ford continued soliciting feedback from customers as the Taurus evolved. Lesson: listen to customers and let them add value throughout a product’s life cycle.

New Economy companies have quickly grasped the concept of customer value creation. Using technology, the value created by customers rises to a whole new level.

LEGO Mindstorms: LEGO provides the example of an Old Economy company venturing into New Economy territory. LEGO management astutely concluded that toy robotics were the future of their cash-cow toy line. In 1998, LEGO released a robotic version of the LEGO toy icon called Mindstorms, 15 years in the making with MIT. Within days young techies reverse engineered their way into Mindstorms’ proprietary operating system, posting detailed plans of how the robots worked all over the Internet.

LEGO management could have reacted the wrong way. (Insiders claim that LEGO management did, in fact go nuts, threatening with legal action.) Customers, naturally, would have objected strongly to this kind of reaction. After all, from the customers’ perspective, they were adding value to the product.

LEGO, however, pulled a rabbit out of the hat. They opted to make their software open technology, orienting their web site to encourage the sharing of LEGO Mindstorms developments. Could anyone have predicted what happened next? Mindstorms reached cult status with young customers and adults adding extraordinary value to the robotic toy’s development. (Apparently adults make-up more than more than half of LEGO Mindstorms’ users.) Essentially, all over the world thousands of budding software engineers voluntarily develop software for LEGO Mindstorms. That’s called customers creating value, and it’s paying off big time for LEGO. ( Linux technology is another example.

E-Bay: E-Bay is the ultimate model of value creation: the customers do everything while E-Bay provides the framework. Customers provide products to be sold, product pricing, even feedback on how E-Bay can improve – what they really provide feedback on is how the customers can create more value! At every step of E-Bay’s business model the customer sits at the nucleus of both creating the E-Bay model and adding value to the E-Bay model. That’s hard to beat.

Another element to Internet business models the likes of E-Bay and Amazon.Com is the customer’s role in providing instant feedback through technology. Sony’s Pet Dog can be web-enabled, which is pretty exciting and fun for the customer. More importantly, every time a customer plays with the pet via the Internet, Sony finds out what the pet is doing, what it did yesterday, and the day before that, too. This feedback means the customer’s actions add value and allow Sony to respond to what customers like best about the product. No wonder those metal dogs sell for $2,500 USD and Sony can’t keep up with demand! Therefore, technology, and especially web-enabled technologies, plays a big part in customers creating value.

The Lesson? Figure out how your customers add value and spend a lot of timing enriching that aspect of your company. Supporting this value creation must be a strategic focus towards the customer to lock-in customer loyalty. (Example: E~Bay soliciting customers for ways to improve E~Bay’s service.) The following questions and matrix can assist people with determining how customers can become (or already are) part of the value creation chain.
  1. How does the customer use my product or service?
  2. How can the customer’s use of the product add value?
  3. How can Internet or on-line technologies be incorporated into the customer experience? What value would this add?
  4. Is there an opportunity for the customer to provide feedback on the product/service?
The name of the game is to identify unpredictable sources of value creation that the customer can provide.

No comments:

Post a Comment